Image upload not working – Lighttpd

I have a fresh install of wordpress in a subdirectory on my webserver at /cmwebdev/lighttpd/cmfworks/http/blogs/”cjhome”

I have set-up a virtual host for my subdomain so that

http://cjhome.mysite.com ==> points to ===> subdirectory “/cmwebdev/lighttpd/cmfworks/http/blogs/cjhome”

All this works fine with the Mod_Rewrite rules:
========================================
url.rewrite-once = (
“^” + wpdir + “(wp-.+).*/?” => “$0”,
“^” + wpdir + “(sitemap.xml)” => “$0”,
“^” + wpdir + “(xmlrpc.php)” => “$0”,
“^” + wpdir + “keyword/([A-Za-z_0-9-])/?$” => wpdir + “index.php?keyword=$1”,
“^” + wpdir + “(.+)/?$” => wpdir + “index.php/$1”
)

and the vhost entry in lighttpd.conf below:
=============================

$HTTP[“host”] =~ “(^|\.)cjhome\.mysite\.com” {
server.error-handler-404 = “/index.php”
server.document-root = “/cmwebdev/lighttpd/mysite/http/blogs/cjhome”
accesslog.filename = “/var/log/lighttpd/mysite/cjhome/access.log”
server.errorlog = “/var/log/lighttpd/mysite/cjhome/error.log”
var.wpdir = “/”
include “wp-rewrite.conf”
}

But when I try to upload an image even as small as 100kb the flash uploader does not move stays at 0% and the browser uploader brings me to a blank page with the url http://cjhome.mysite.com/wp-admin/media-upload.php?inline=&upload-page-form=

All my permalinks otherwise work .